Alliance Data Reports First Quarter Results

COLUMBUS, Ohio, April 23, 2020 /PRNewswire/ -- Alliance Data Systems Corporation ADS, a leading provider of data-driven marketing, loyalty and payment solutions, today announced results for the first quarter ended March 31, 2020.

Commenting on first quarter results, Ralph Andretta, president and chief executive officer of Alliance Data said, "Our performance in January and February of this year showed positive momentum, with strong revenue growth and the benefit of cost savings programs. Favorable business trends continued through the onset of COVID-19 in early March, resulting in revenue growth of 4% for the first quarter paired with lower operating costs of $90 million for the period. First quarter earnings, however, were below last year's levels, as we increased our provision for loan loss by $404 million reflecting the adoption of CECL as of January 1, 2020 and the COVID-19 impact on our business, resulting in earnings before taxes of $25 million.  Over $300 million of the $404 million provision increase is due to the economic impact of COVID-19.

Andretta continued, "In navigating this difficult and unprecedented time, the health and safety of our people remains the number one priority at Alliance Data, and I commend the tremendous efforts of our global leadership team and associates during this crisis. I am proud of the significant measures implemented to keep everyone safe and to minimize disruption to our business during the quarter and likewise, to our partners and customers.

"With our business continuity plans fully implemented, Alliance Data continues to operate effectively within this challenging environment, demonstrating the dedication of our global associates and our robust IT infrastructure. Teleworking protocols are in place for more than 95% of our global associates. Additionally, cross-training programs have been completed at our Card Services business to ensure appropriate workforce coverage while managing higher cardholder-related call volumes resulting from forbearance programs we have proactively introduced. Also, we are working closely with our partners across all of our businesses to optimize their budgets, adjust marketing support accordingly and accommodate the rapid shift to ecommerce in light of temporary retail-based store closings resulting from COVID-19."

Andretta continued, "The Company entered this crisis in a position of strength and is focused on remaining liquid and well capitalized.  We are proactively managing all aspects of our business to further strengthen our financial position and reduce risk. At the end of the first quarter, we had over $1 billion of immediate liquidity between cash on hand and our revolver at the parent level. Our FDIC-insured banks had $2.5 billion of equity capital and total risk-based capital of approximately 17%. Like many public companies, we have taken the prudent steps of suspending our share repurchase program and reducing our dividend payments during this time of uncertainty. At the same time, we have tightened our credit standards and continue to actively identify and implement cost-reduction measures that will significantly lower our expense levels over the near-term.  We continually stress test our business and have intensified that process in light of the current business environment.  While it is difficult to predict how the economy will evolve, Alliance Data is projected to remain EBT and cash flow positive with sufficient liquidity through an assumed period of very significant stress."

CONSOLIDATED RESULTS

Consolidated revenue increased 4% to $1.38 billion compared to the first quarter of 2019, while income from continuing operations decreased 83% to $30 million, due to an increase in provision for loan loss of $404 million in the first quarter of 2020.  EBT decreased 88% to $25 million, adjusted EBITDA, net decreased 74% to $83 million and EPS decreased 81% to $0.63, all due to the higher provision expense.    

SEGMENT RESULTS

Card Services: Revenue increased 5% to $1.18 billion benefitting from a gross yield improvement of 140 basis points. Adjusted EBITDA, net of $47 million was down 84% due to a $404 million increase in provision for loan loss reflecting the combined effect of our CECL implementation and COVID-19-related impacts on our business.   Net principal loss rates were 7.0% in the first quarter, up 60 basis points year-over-year, reflecting reduced volumes. Delinquency rate of 6.0% increased 20 basis points from December 31, 2019.   

LoyaltyOne®: Revenue decreased 3% to $198 million resulting from the sale of Precima in early January 2020, which contributed $15 million in incremental revenue in last year's first quarter. Adjusting for the sale of Precima, revenue increased $9 million, or 4%. On a constant currency basis, revenue was flat at $203 million and adjusted EBITDA increased 7% to $59 million.  AIR MILES^® revenue increased 1% on a constant currency basis and adjusted for the sale of Precima, due to higher brand revenue associated with strong issuance growth. AIR MILES reward miles issued increased 5%, benefitting from increased sponsor promotions early in the first quarter. AIR MILES reward miles redeemed decreased 9%, reflecting the impact of COVID-19 on travel related redemptions in March. BrandLoyalty revenue increased 8% due to better than expected program performance with its grocer clients.

SUMMARY AND OUTLOOK

Andretta concluded, "Looking ahead, it is difficult to project the duration of this pandemic and its impact on our full year results. Therefore, we are suspending our previous guidance for 2020.  That said, our business is fully operational, and we are confident that Alliance Data will manage through this crisis effectively. Using the last recession as a guidepost, we believe our credit card portfolio is more diversified and better positioned from a risk standpoint than it was in 2009, and we are in a stronger financial position, with significant liquidity and additional borrowing capacity.

"We have taken action throughout our enterprise to address the COVID-19 impacts on our business and those we expect to see in the future. At Card Services, we implemented our recession readiness program to address lower credit sales and higher delinquencies.  In addition to managing credit risk, we are adjusting our partner marketing strategies to align with the needs of their business and customers, including shifting efforts toward e-commerce, while working with customers on forbearance plans. At AIR MILES, we are adjusting the timing of significant coalition and sponsor-specific promotions and marketing programs. Additionally, we are enhancing efforts on redemption categories that focus on high-demand, non-travel reward options, stay-at-home products and services, and AIR MILES Cash (in-store, online and mobile) redemptions.

"It is difficult to project the recovery rate of retail spending post-COVID-19. Today, our focus is on assisting our partners and customers in addressing today's realities, while we strengthen Alliance Data's liquidity with a focus on the future. We also expect to realize additional savings in procurement, marketing and operating expenses, while maintaining service levels and positioning for future growth. At the same time, we have prioritized strategic investments in data and information management, and additional digital customer-facing products and capabilities to ensure that Alliance Data emerges from this crisis as an even stronger competitor."

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give our expectations or forecasts of future events and can generally be identified by the use of words such as "believe," "expect," "anticipate," "estimate," "intend," "project," "plan," "likely," "may," "should" or other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding, and the guidance we give with respect to, our anticipated operating or financial results, completion of strategic initiatives, future dividend declarations, and future economic conditions, including, but not limited to, fluctuation in currency exchange rates, market conditions and COVID-19 impacts related to relief measures for impacted borrowers and depositors, labor shortages due to quarantine, reduction in demand from clients, supply chain disruption for our reward suppliers and disruptions in the airline or travel industries.

We believe that our expectations are based on reasonable assumptions. Forward-looking statements, however, are subject to a number of risks and uncertainties that could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this release, and no assurances can be given that our expectations will prove to have been correct. These risks and uncertainties include, but are not limited to, factors set forth in the Risk Factors section in our Annual Report on Form 10-K for the most recently ended fiscal year, which may be updated in Item 1A of, or elsewhere in, our Quarterly Reports on Form 10-Q filed for periods subsequent to such Form 10-K. Our forward-looking statements speak only as of the date made, and we undertake no obligation, other than as required by applicable law, to update or revise any forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.

Financial Measures

In addition to the results presented in accordance with generally accepted accounting principles, or GAAP, the Company may present financial measures that are non-GAAP measures, such as constant currency financial measures, pre-provision pre-tax earnings, adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, net of funding costs, core earnings and core earnings per diluted share (core EPS). Constant currency excludes the impact of fluctuations in foreign exchange rates. The Company calculates constant currency by converting our current period local currency financial results using the prior period exchange rates. The Company uses adjusted EBITDA and adjusted EBITDA, net as an integral part of internal reporting to measure the performance and operational strength of reportable segments and to evaluate the performance of senior management. Adjusted EBITDA eliminates the uneven effect across all reportable segments of non-cash depreciation of tangible assets and amortization of intangible assets, including certain intangible assets that were recognized in business combinations, and the non-cash effect of stock compensation expense. In addition, adjusted EBITDA eliminates the effect of the gain (loss) on the sale of a business, strategic transaction costs, and restructuring and other charges.  Adjusted EBITDA, net is equal to adjusted EBITDA less securitization funding costs and interest expense on deposits. Similarly, core earnings and core EPS eliminate non-cash or non-operating items, including, but not limited to, stock compensation expense, amortization of purchased intangibles, non-cash interest, gain (loss) on the sale of a business, strategic transaction costs and restructuring and other charges. The Company believes that these non-GAAP financial measures, viewed in addition to and not in lieu of the Company's reported GAAP results, provide useful information to investors regarding the Company's performance and overall results of operations.

Reconciliation of Non-GAAP Financial Measures

Reconciliations to comparable GAAP financial measures are available in the accompanying schedules, which are posted as part of this earnings release in both the News and Investors sections on the Company's website (www.alliancedata.com). The events necessitating a non-GAAP adjustment are inherently unpredictable and may have a material impact on the Company's future results.

The financial measures presented are consistent with the Company's historical financial reporting practices. Core earnings and core EPS represent performance measures and are not intended to represent liquidity measures. The non-GAAP financial measures presented herein may not be comparable to similarly titled measures presented by other companies, and are not identical to corresponding measures used in other various agreements or public filings.

Conference Call       

Alliance Data will host a conference call on Thursday, April 23, 2020 at 8:30 a.m. (Eastern Time) to discuss the Company's first quarter 2020 results. The conference call will be available via the Internet at www.alliancedata.com. There will be several slides accompanying the webcast. Please go to the website at least 15 minutes prior to the call to register, download and install any necessary software. The recorded webcast will also be available on the Company's website.

If you are unable to participate in the conference call, a replay will be available. To access the replay, please dial (800) 585-8367 or (416) 624-4642 and enter "1249616". The replay will be available at approximately 11:45 a.m. (Eastern Time) on Thursday, April 23, 2020.

About Alliance Data^® ADS is a leading provider of data-driven marketing, loyalty and payment solutions serving large, consumer-based industries. The Company creates and deploys customized solutions that measurably change consumer behavior while driving business growth and profitability for some of today's most recognizable brands. Alliance Data helps its partners create and increase customer loyalty across multiple touch points using traditional, digital, mobile and emerging technologies. An S&P 500, FORTUNE 500 and FORTUNE 100 Best Companies to Work For company headquartered in Columbus, Ohio, Alliance Data consists of businesses that together employ over 8,500 associates at more than 50 locations worldwide.

Alliance Data's Card Services business is a provider of market-leading private label, co-brand, and business credit card programs. LoyaltyOne^® owns and operates the AIR MILES^® Reward Program, Canada's most recognized loyalty program, and Netherlands-based BrandLoyalty, a global provider of tailor-made loyalty programs for grocers.

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SOURCE Alliance Data Systems Corporation